U.S. Postal Service tries to get smarter on routing

February 07, 2013|Reuters

The U.S. Postal Service is soliciting advice on how to create a new, high-technology system for routing mail and packages, in a move that could help close the gap between it and private-sector rivals FedEx and UPS.

The financially struggling mail agency said it wants a "dynamic routing" strategy that can help it offer new products that could boost revenue, such as same-day delivery and pickups at retail locations.

It would also help the agency deliver more efficiently as it moves to five-day delivery of first-class mail. The Postal Service announced on Wednesday that it will phase out Saturday delivery to cut costs.

The U.S. agency has struggled for years to regain financial footing as it grapples with massive payments for future retiree health benefits and as Americans' reliance on online communications drives down mail volume. It lost nearly $16 billion in its last fiscal year.

The mail agency quietly posted last month a "request for information" on a U.S. government website seeking advice from private companies or individuals for a dynamic routing system for delivering individual packages outside its day-to-day routes. It is not offering any compensation for information at this point.

The Postal Service sees an opportunity in the growth of e-commerce, but it lacks a state-of-the-art software or GPS-based system to help the deliverer find individual addresses and the best routes to get there.

"There's an upside and a downside to the Internet," USPS spokeswoman Sue Brennan said in an interview. "It has decreased our first class mail, but what it's done is that people are shopping online and they need someone to deliver these packages."

Postal Service mail volume has dropped by about 25 percent over the last decade as more Americans communicate through email. But the National Retail Federation projects that online retail sales could go up by up to 12 percent this year, which translates into an increased need for package delivery services.

"We're looking for a system that will enable expedited delivery of packages in a delivery sequence that makes best use of our resources: employees, their time, fuel, etc, outside of regular carrier routing," Brennan said. "Someone could just be delivering packages and it wouldn't be every house in a neighborhood - so what's the best way to get to all the addresses in a specific geographic area or ZIP Code?"

The Postal Service's main competitors, FedEx and UPS, have been using dynamic routing for years, and are able to do more with less using this system, said Jeff Kauffman, a transportation analyst with research firm Sterne Agee in New York.

"I would argue that the Post Office doesn't understand the flow on an individual basis. The Postal Service infrastructure was created a world ago for a world that has changed," he said.

Dynamic routing, Kauffman said, would make the Postal Service more efficient and more relevant, but wouldn't necessarily give it a competitive advantage over UPS and FedEx.

Unlike its competitors, the Postal Service remains constrained by its universal service obligation, including delivering to remote places that aren't profitable. FedEx and UPS don't have this problem, and often use the services of the Postal Service for final-mile deliveries. Both private companies seem to welcome the Postal Service's attempt to improve.

Kara Ross, a spokeswoman for UPS, said in an email that dynamic routing is a fairly complex system, and that UPS is continually updating its technology to be more efficient in delivery. "We utilize dynamic routing extensively and we view our systems as a competitive asset," she said. "We encourage competition, and the use of such technology by USPS is not unexpected."

FedEx spokeswoman Maury Donahue, said the company - a major customer of and supplier to the Postal Service - supports any efforts by the Postal Service to successfully manage its business. "We believe that a healthy Postal Service, the largest postal operator in the world, is important to America," she said via email.

At this point, the Postal Service is collecting information and has no plans yet to award a contract.

Kauffman said dynamic routing would help the Postal Service make more money over the long term, but a new system wouldn't necessarily come cheap.

"It's do-able," he said. "The question is does it require a technology investment?